What is a bailout?

Bailout in short is a good name for cover-up.

I used to work for an association. The name will remain anonymous due to sensitive reason. As the management of the association is ineffective, a restructuring specialist was called in to assess the situation and advise on the executive committee. The advice was given in good faith and a change of the senior management is proposed. Due to emotional or resistance to change reasons, the change was opposed by the committee. This is sweeping the mess under the carpet or refusal to face the reality. In such situations, things do not get better. An organization that is resistance to change for the better will drift along instead of sprint ahead.

Have you ever seen a mother scolding a stranger (or kid) when her own child is in the wrong? This is a bailout. The mother (or the larger entity like the US government) does not punish her child (or US banks like Citicorp) when he or she is in the wrong. The mother (US government) chooses to say “let me protect you” and cover up your mistakes (US banks management mistakes). In this case, the government covers up the mistake by giving funds to the banks.

The US banks have preferred bailouts than restructuring their organizations. I wondered how far they can go if the old management is still in charge of the organizations. Jim Rogers overtly feel that the banks should be allowed to go bankrupt. He felt that bailouts delayed the inevitable change that is imperative. Time will tell if Jim Rogers is right.

What will be the state of the economy in 6 months time?

Forecasting is not my strength and i may be wrong. Public car park at Bishan and Toa Payoh shown that 60-70% of vehicles are not utilized at 8.30 in the morning. The percentage of unused vehicles have increased from 30-40% to 60-70% if my eyesight did not fail me. What this means is that more people are choosing to take bus and mrt to work, rather than drive. It also means that people can hardly afford to pay for the ERP gantry charges and parking fees. If another wave of retrenchment comes, reality bites and they will begin to dump their cars in masses. Even if there is no retrenchment, people will find paying road tax and insurance a waste of money and still sell their cars as they hardly use it. Sometimes the rational decision will take longer as the ego and face-saving still prevail in the average Singaporean. But it will come.

Anecdotal evidence shown that established businesses are closing down as the consumer spending wanes. Nearby Miss Clarity Café (2 years operating ) and Middle Curtains (more than 10 years operating) have both closed. All the best to the new businesses that have taken over the space. More and more shops are now “for Rent”. My gut feel is that business conditions are worsening as the weaker players get weeded out.

The sudden slew of large IPOs like GLP and MIT proved that the storm may arrive in 6-9months. As these large players knew that the window of opportunity to sell high is short, they rushed for the listings.

I suspect Mr. Anthony Robbins economic warning could be right. (Pls google “Anthony robbins economic warning”). Please continue to build your ark and stay tough. All the best buddy.

Is there a second dip coming?

Is there a second recession coming? This is a question economist, fund managers, politicians debate vigorously. Many opposing opinions were given by many experts. Jim Rogers, Anthony Robbins and Roubini claimed that things are going to get much worse. Warren Buffet and Bill Gates countered that better days are ahead for America. I wondered who is right as they are all experts in their fields. I probed deeper to uncover the answer.

My research in the latest financial reports of listed companies showed that most companies in Singapore are cautious about the outlook in the short term. Most used a standard reply similar to Hoe Leong's half year results for the outlook “As the global economy progressively recovers, the Group is encouraged by signs of improving demand in our heavy equipment parts business. However, as the operating environment continues to be challenging, the Group will continue to be cautious and prudently review our business operations and performance, while questions of whether the current recovery is sustainable remain.” I also looked into the latest financial report of US banks like Citicorp and Fifth Third Bank. Citicorp has a few insiders selling shares which showed that probably they feel the stock is overpriced. The next 2 years may be rocky to many others.

Regardless which expert is right, I applied Peter Lynch’s Strategy. That is to ignore the noise in the media and experts opinion and to stay invested in stocks that offer value. Well-managed companies and stocks offered a better return than savings account in the long term. From Rich Dad Prophecy “ if you have a strong financial education, you are not worried about market going up or down. You are just happy that they are going up and down.” As such, I remained invested in my stocks and remained optimistic about the bigger picture that tomorrow will be a better day.

Contradicting government policies

There are many of them. One of them is the government encouragement for Singaporean to have more babies. I wondered how they can have more babies when flat prices are expensive even for a graduate couple. Then there is childcare that cost $1,000 per month which is easily half of a graduate salary. Another is government wanted to reduce traffic jam by placing ERP along roads. The key question is why create this problem by issuing so many COEs to Singaporean. The government encouraged senior citizens to work till 60s but they took jobs away by attracting foreigners here. I find it strange that the government has acted this way. The government encouraged ex-convicts to work and yet I suspect many HR managers in government sectors will reject these ex-convicts.

I hope for a deep recession

You may call me a bad guy for wishing a deeper downturn. I feel that it is good for the economy on the whole as it will weed out non-performing workers, businesses, products and services. In many places, I saw many workers with poor attitude, services and poor quality products. They could be local or foreign workers, working in retail outlets to cleaners. It is time for these non-performing workers and products and services to go. Therefore, I hope for a deep recession to improve the products and services in the economy.

Does Lady bankers skirts have to be so short?

This afternoon at a coffeeshop in Bishan , I saw 2 ladies with very short skirts walking past. They could be bankers from the nearby banks or other sales agents. I wondered why they need to wear such short skirts. One of the ladies skirts is so short that she keeps adjusting it to cover more of her long legs.

Maybe they need to dress skimpily to drum up more business. Perhaps they love the attention that it gathered. To me their dress code borders on the type we seen at red light district. It is totally unprofessional and unacceptable. How do their customers control themselves? Who can say no to their sales pitch?

A leading indicator of the economy

I have tried many ways to find a reliable leading indicator of the economy. When this idea flashed in my mind, I did not expect the clue to be so near me. As I travelled around Bishan, I found that many cars are idling in the car park at 9am. The number of idle cars occupied about 30-40 percent of the car park lots. As most people go to work at this time, the car is likely to be idle for the whole day. Owners of these vehicles is most likely cash strapped to spend money on petrol, erp, commercial carparks and have switch to public transport.

In short, they will be paying extra money for road tax and insurance for very little car usage. As their usage is minimum, they will soon realize the cost of the cars outweighed the benefits. Soon, reality bites and they will be forced to sell their cars. If that happen, the car market will be flooded with excess inventory of cars and resale car prices will fall drastically.

The tipping point will be the wave of restructuring by companies to downsize or right size their workforce as the economy falters. If these cars were reduced at the car parks, it will mean that the deleveraging process has begun and sellers have begun to sell their unused cars. This is a watershed and marks the start of the second economic crisis.

During deleveraging, cars will be sold, the last in line will be houses. It is estimated that plenty of people purchased condominium and lived in hdb flats. If interest rate hikes and rental market falls, the people will be faced with a double whammy. For example a couple who live in hdb flat and pays $2,500 per month for the housing installment will find it hard to service the installment when rental market falls to $2,100 per month and interest payment hiked to $3,000 per month. For couples who lost their jobs, their plight will be worst.